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HSBC BANK, USA, NA, Plaintiff, v. Mihai MARGINEANU and Julia Margineanu a/k/a Julia Margineanu, a/k/a Julia Varga, if they be living and if they be dead, the respective heirs at law, next of kin, distributees, executors, administrators, trustees, devisees, legatees, assignors, lienors, creditors, and successors, in interest and generally having or claiming under by or through said, defendants who may be deceased, by purchase, inheritance, lien or otherwise of any right, title or interest in and to the premises described in the complaint herein and their respective husbands, wives, widow, if any and each and every person not specifically named who may be entitled to or claim to have any right, title or interest in the property described in the verified complaint, all of whom and whose names and places of residence unknown and cannot after diligent inquiry be ascertained by the plaintiff, The United States of America o/b/o Internal Revenue Service, New York State Department of Taxation and Finance, State Farm Bank FSB, Palisades Collection, LLC, LVNV Funding LLC, Mandee Shops, a div. of Big “M”, Inc., Mayra A. Viles, Miguel Rivera Evelyn Quinones, Defendants.
ORDERED that this motion (# 004) by the plaintiff seeking the appointment of a receiver pursuant to CPLR 5228, is denied, with leave to renew pursuant to CPLR 6401; and it is further
ORDERED that the cross motion (# 005) by defendants Mihai & Julia Margineanu, for summary judgment dismissing the action as barred by the statute of limitations, is denied; and it is further
ORDERED that plaintiff is directed to file a notice of entry within five days of receipt of this Order pursuant to 22 NYCRR § 202.5-b(h)(2).
Because of the importance, for statute of limitation purposes, to both lenders and borrowers, the Court will explore the distinction between automatic acceleration provisions of an installment mortgage contract and the optional acceleration clauses that are common in today's mortgage contracts. The Court holds that under the optional acceleration clause, the statute of limitations does not offer a defense to future monthly installment payments that are due and owing, until the entry of a judgment of foreclosure.
The facts, while as bewildering as the applicable law, are uncontested. This is a foreclosure action on property located in Centereach, New York. In essence, on April 10, 2006, defendants Mihai Margineanu and Julia Margineanu borrowed $324,950.00 from the plaintiff's predecessor-in-interest and executed a promissory note and mortgage. Defendants defaulted on the loan by failing to make the monthly installment payment due on December 1, 2008. As a result, plaintiff's related entity, HSBC Mortgage Corporation (USA), commenced a foreclosure action on April 27, 2009, by the filing of an unverified complaint (Suffolk County Index Number 15674/2009). The borrower-defendants filed an unverified answer, dated May 18, 2009, by a prior counsel.
Thereafter, plaintiff's motion for summary judgment was granted by order dated January 26, 2010 (Tanenbaum, JSC), and entered with the Clerk of Suffolk County on February 4, 2010. The Order with Notice of Entry was forwarded to defendants' counsel on April 29, 2010. The plaintiff filed a consent to change on December 15, 2011. The new counsel disposed of the first action by a Stipulation Discontinuing Action, without prejudice, dated October 9, 2012. However, that stipulation was only signed by plaintiff's attorney, was not signed by defendants' prior attorney and improperly states that “no Defendants have appeared in the instant foreclosure proceeding․”.
The instant action was commenced by a different law firm by filing on August 20, 2015. On December 16, 2015, plaintiff submitted an ex parte Order of Publication to the court for signature, due to the inability to serve the defendant, Mihai Margineanu. That Order was signed on March 14, 2016 by the Hon. Peter H. Mayer. On May 6, 2016, a second Order of Publication was submitted to the court due to the inability to serve both defendants. That order was signed nearly a year later by Justice Mayer, on April 14, 2017. It is uncontradicted that the defendants do not reside at the premises and, instead, rent the property to various tenants. In accordance with the Order, an amended summons and complaint was filed on April 26, 2017. By letter dated May 5, 2017, the appointed Guardian ad Litem notified the court that since January 29, 2016, he was no longer on the appointment list. By application dated May 10, 2017, plaintiff's counsel submitted a proposed Order Appointing a Successor Guardian Ad Litem, which was not signed by the court until September 28, 2017. Issue was joined with service of defendants' answer, through new counsel, on May 19, 2017, a filing which plaintiff's apparently accepted. On April 18, 2018 plaintiff filed a new consent to change attorney (NYSCEF Doc. No. 54). The matter was reassigned to this Part pursuant to Administrative Order No. 32-18 dated April 19, 2018. On August 6, 2018, plaintiff filed the instant motion (# 004) seeking the appointment of a receiver. The defendants cross moved (# 005) for summary judgment. Both motions were submitted for decision on September 21, 2018.
Contentions of the Parties
The defendants claim that this action is time-barred (see CPLR 213 ). The contention is that the plaintiff's related entity and predecessor-in-interest accelerated the Note and Mortgage on April 27, 2009, when it commenced the prior, but subsequently discontinued, action (see HSBC Mortgage Corporation (USA) v. Mihai Margineanu, et. al., Suffolk County Index No. 15674/2009). Defendants do not challenge the terms of the mortgage or note. Their sole claim is that plaintiff lost the right to seek foreclosure based upon distinct defaults that occurred subsequent to the discontinuance of the initial foreclosure complaint.
Plaintiff insists that in the absence of a final judgment in its favor, the borrowers still have the right under certain contract provision of the mortgage, the reinstatement provisions, to cure the default and to continue making monthly installment payments.
Burden of Proof
Here, the defendants, as movants, bear the burden of proof to establish its claim (see generally U.S. Bank Trust, N.A. v. Carter, 164 A.D.3d 539, 83 N.Y.S.3d 1 [2d Dept. 2018]; HSBC Mtge. Corp. [USA] v. MacPherson, 89 A.D.3d 1061, 1062, 934 N.Y.S.2d 428 [2d Dept. 2011] ), rather than the plaintiff. This Court finds that counsel for the defaulting defendants has failed to establish, prima facie, that this action is time-barred (see Nationstar Mtge., LLC v. Weisblum, 143 A.D.3d 866, 39 N.Y.S.3d 491 [2d Dept. 2016] ).
The Court notes that the cross motion is based solely upon the attorney's affirmation. However, an affirmation from an attorney having no personal knowledge of the facts is without evidentiary value and, thus, is insufficient to raise a triable issue of fact (see Zuckerman v. City of New York, 49 N.Y.2d 557, 427 N.Y.S.2d 595, 404 N.E.2d 718 ; see also Bank of New York Mellon v. Aiello, 164 A.D.3d 632, 83 N.Y.S.3d 135 [2d Dept. 2018] ). The only evidence submitted is the unverified complaint from the prior action, without an affidavit from a party with personal knowledge. Such is insufficient.
Reliance upon an Unverified Complaint is Legally Insufficient
Any discussion on the law of acceleration of a mortgage debt, must begin with the seminal mortgage acceleration case of Albertina Realty Co. v. Rosbro Realty Corp., 258 N.Y. 472, 180 N.E. 176 (1932). Therein, the lender filed a foreclosure action after the borrower failed to make a timely installment payment. The borrower tendered the payment three days after the action was filed but prior to service of the pleadings. The lender refused the payment arguing that the verified complaint had accelerated the entire debt. The High Court agreed and declared that the plaintiff had elected the whole amount due.
We are satisfied, however, that the unequivocal overt act of the plaintiff in filing the summons and verified complaint and lis pendens constituted a valid election (italics added).
The Second Department has recognized the filing of a verified complaint constituted a valid election to accelerate (see NMNT Realty Corp. v. Knoxville 2012 Trust, 151 A.D.3d 1068, at 1070, 58 N.Y.S.3d 118 [2d Dept. 2017] ). In Beneficial Homeowner Serv. Corp. v. Tovar, 150 A.D.3d 657, 55 N.Y.S.3d 59 (2d Dept. 2017), where a prior action was dismissed for failure to effectuate personal service. The Court held:
․ the failure to properly serve the summons and complaint upon the defendant homeowner did not as a matter of law destroy the effect of the sworn statement that the plaintiff had elected to accelerate the maturity of the debt (citing Albertina ) (italics added).
Recently, the Second Department once again noted the significance of the “sworn statement” of acceleration in Deutsche Bank Nat. Trust Co. v. Adrian, 157 A.D.3d 934, 69 N.Y.S.3d 706 (2d Dept. 2018), a case where a voluntary discontinuance was filed after the running of the six year statute of limitations (see CPLR 213 ),
As noted in Puzzuoli v. JPMorgan Chase Bank, N.A., 55 Misc.3d 417, 49 N.Y.S.3d 228 (Sup. Ct. Dutchess County 2016):
Although the Verified Complaint was not filed until several days later, the choice to accelerate the Mortgage was made on July 24, 2009, when the oath was administered. [Gold v. Vanden Brul, 28 Misc.2d 644, 211 N.Y.S.2d 757 (1961) (the “sworn act” of verifying the foreclosure complaint “constituted an election to accelerate”); see also Albertina, 258 N.Y. 472, 180 N.E. 176 (stating that a tender of payment does not “destroy the effect of the sworn statement that plaintiff has elected”) ].
It is clear that an unverified complaint cannot stand as the basis for a default judgment pursuant to CPLR 3215 (see HSBC Bank USA, Nat. Assn. v. Cooper, 157 A.D.3d 775, 69 N.Y.S.3d 350 [2d Dept. 2018]; see also HSBC Bank USA, Nat. Assn. v. Simms, 163 A.D.3d 930, 81 N.Y.S.3d 517 [2d Dept. 2018]; Michael v. Atlas Restoration Corp., 159 A.D.3d 980, 73 N.Y.S.3d 622 [2d Dept. 2018] ).
Caselaw often notes that there must be a “clear and unequivocal” intention to accelerate the mortgage debt in accordance with the acceleration provisions of the mortgage (see Wells Fargo Bank, N.A. v. Burke, 94 A.D.3d 980, 982-3, 943 N.Y.S.2d 540 [2d Dept. 2012]; Sarva v. Chakravorty, 34 A.D.3d 438, 439, 826 N.Y.S.2d 74 [2d Dept. 2006] ). It seems inconsistent, then, to hold that an unverified complaint cannot support a default judgment but that one may accelerate future monthly installment payments that have not yet come due. Such is contrary to the holding in Albertina, supra.
It therefore makes compelling sense that a verified complaint would be essential to constitute “the sworn statement that the plaintiff had elected to accelerate the maturity of the debt” (Beneficial Homeowner Serv. Corp. v. Tovar, 150 A.D.3d 657, 55 N.Y.S.3d 59 supra ) (italics added) (see CPLR §§ 3020; 105[u]; see also Gold v. Vanden Brul, 28 Misc.2d 644, 211 N.Y.S.2d 757 [Sup. Ct., Monroe County 1961] [the “sworn act” of verifying the foreclosure complaint “constituted an election to accelerate”] ). Here, since the complaint is unverified, it should not be used to trigger the acceleration of the mortgage debt for purposes of the commencement of the running of the statute of limitations.
The Court notes that various appellate cases seemingly overlook this aspect of Albertina, supra, while acknowledging the significance of that case when holding that the mortgage was accelerated (see eg., Milone v. US Bank Natl. Assn., 164 A.D.3d 145, 154–55, 83 N.Y.S.3d 524, 2018 WL 3863269 *5 [2d Dept. 2018]; U.S. Bank, Natl. Assn. v. Kess, 159 A.D.3d 767, 71 N.Y.S.3d 635 [2d Dept. 2018] ). However, as noted by the Court of Appeals in Albertina, supra, a sworn, verified complaint should be the starting point for any claim of acceleration, or even, the limitation on revocation of a long term installment mortgage to six years from a claimed acceleration (see Deutsche Bank Natl. Trust Co. v. Adrian, 157 A.D.3d 934, 69 N.Y.S.3d 706 [2d Dept. 2018] ). The same unverified complaint cannot, and should not, be used to demonstrate compliance with the 90-day notice of RPAPL § 1304, and yet every such complaint must contain an allegation to that effect. Apparently though, defendants argue that an unverified complaint can be the basis for a claim of acceleration, contrary to Albertina, supra. This Court must disagree.
Prior Discontinuance Nullified the Prior Complaint
Defendants rely upon caselaw that holds that the commencement of a prior foreclosure action starts the running of the statute of limitations (see Clayton Natl., Inc. v. Guldi, 307 A.D.2d 982, 763 N.Y.S.2d 493 [2d Dept. 2003] ). However, defendants fail to address the issue that the predecessor's foreclosure action was affirmatively discontinued by voluntary discontinuance on October 9, 2012, at the prior plaintiff's request. Once again, the Court of Appeals has held that when there is a validly filed stipulation of discontinuance resolving a case, it is as if the case “had never been begun” (Yonkers Fur Dressing Co. Inc. v. Royal Ins. Co. Ltd., 247 N.Y. 435, 444, 160 N.E. 778  ).
As noted by then Justice Daniel F. Luciano in Housberg v. Baker, 146 Misc.2d 960, 962, 553 N.Y.S.2d 280 (Sup. Ct., Suffolk County 1990), quoting treatise on New York law:
When an action is discontinued, it is as if the action had never been; all prior orders in the case are nullified. Once an action has been discontinued, there can be no judgment or appeal, and no objection to another action for the same relief on the ground that a prior action is pending (citation omitted) ․ once an action has been discontinued by consent or stipulation, it is [as though] the action never existed; ․
Even in the ancient case of Loeb v. Willis, 100 N.Y. 231, 235, 55 Sickels 231, 3 N.E. 177 (1885) the Court of Appeals stated:
The foreclosure action was discontinued and all the proceedings therein thus annulled. There was no longer any record or adjudication in that action which bound any one. By the discontinuance of an action the further proceedings in the action are arrested not only, but what has been done therein is also annulled, so that the action is as if it never had been. (italics added)
The Second Department has adhered to that rule. In Newman v. Newman, 245 A.D.2d 353, 665 N.Y.S.2d 423 (2d Dept. 1997) the court held “[w]hen an action is discontinued, it is as if it had never been; everything done in the action is annulled and all prior orders in the case are nullified.” Similarly, the First Department has held that a prior action that did not go to judgment “operated to finalize the action without regard to the validity of the original claim” (Peterson v. Forkey, 50 A.D.2d 774, 376 N.Y.S.2d 560 [1st Dept. 1975] ).
As noted by Justice Robert J. McDonald in U.S. Bank Natl. Assn. v. Wongsonadi, 55 Misc.3d 1207(A), 2017 WL 1333442, (Sup. Ct., Queens County April 5, 2017) “the election to accelerate contained in the complaint was nullified when plaintiff voluntarily discontinued the prior action” and the discontinuance of the prior foreclosure action was therefore “an affirmative act of revocation.” 1 This Court agrees.
Numerous other courts also agree (see Deutsche Bank Natl. Trust Co. v. Lee, 60 Misc.3d 171, 70 N.Y.S.3d 791 [Sup. Ct. Westchester County 2018]; U.S. Bank Natl. Assn. v. Deochand, 2017 WL 1031942, 2017 N.Y. Slip Op. 30472(U) [Sup. Ct. Queens County 2017]; Bank of New York v. Kantrow, 57 Misc.3d 1204[A], 66 N.Y.S.3d 652 [table] [Sup. Ct. Suffolk County 2017]; Soffer v. U.S. Bank, Natl. Assn., 2016 WL 8652779 [Sup. Ct. Kings County, September 30, 2016, No. 513961-2015]; Assyag v. Wells Fargo Bank, N.A., 2016 WL 6138269 [Sup. Ct. Queens County, September 29, 2016, No. 707845-2015]; 4 Cosgrove 950 Corp. v. Deutsche Bank Natl. Trust Co., 2016 WL 2839341 [Sup. Ct. New York County, May 11, 2016, No. 152225/2015] ).
Without going to judgment, the discontinued prior action cannot operate under the doctrines of res judicata and collateral estoppel as a restriction on plaintiff's rights in this case.
Here, the complaint alleges that the defendant borrowers had failed to pay the monthly installments due and owing since December 1, 2008. Since this action was commenced on April 26, 2017, the plaintiff, if successful, will only be able to recover unpaid monthly installment payments and interest for the prior six years, that is, April 26, 2011 (see EMC Mtge. Corp. v. Suarez, 49 A.D.3d 592, 852 N.Y.S.2d 791 [2d Dept. 2008]; see also Wells Fargo Bank, N.A. v. Cohen, 80 A.D.3d at 754, 915 N.Y.S.2d 569, supra; Loiacono v. Goldberg, 240 A.D.2d 476, 477, 658 N.Y.S.2d 138[2d Dept. 1997]; Sce v. Ach, 56 A.D.3d 457, 867 N.Y.S.2d 140 [2d Dept. 2008] ). For those installment payments due as of April 25, 2011, the statute of limitations has not run and plaintiff's action is timely.
At the very least, for purposes of defendants' burden on this motion, since the prior action was “withdrawn by the lender,” an issue of fact exists (see NMNT Realty Corp. v. Knoxville 2012 Trust, 151 A.D.3d 1068, at 1070, 58 N.Y.S.3d 118, supra, citing Federal Natl. Mtge. Assn. v. Mebane, 208 A.D.2d at 894, 618 N.Y.S.2d 88, supra ).
In any event, the discontinuance of the prior action occurred within six years of the commencement of that action (compare Deutsche Bank Natl. Trust Co. v. Adrian, 157 A.D.3d 934, 69 N.Y.S.3d 706 [2d Dept. 2018]; Arbisser v. Gelbelman, 286 A.D.2d 693, 730 N.Y.S.2d 157 [2d Dept. 2001] ).
Under the Terms of the Mortgage, the Acceleration of the Loan does not occur until after the Judgment is entered
A mortgage is a contract. “[A] written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms” (Greenfield v. Philles Records, 98 N.Y.2d 562, 569, 750 N.Y.S.2d 565, 780 N.E.2d 166  ). “Where the terms of an agreement are unambiguous, interpretation is a question of law for the court” (G3-Purves St., LLC v. Thomson Purves, LLC, 101 A.D.3d 37, 40, 953 N.Y.S.2d 109 [Dept. 2012] ).
An interpretation of the mortgage terms is essential. This Court, in Nationstar Mtge., LLC v. MacPherson, 56 Misc.3d 339, 341, 54 N.Y.S.3d 825, 829 (Sup. Ct., Suffolk County 2017), examined the optional acceleration mortgage terms, in particular paragraph 22 and paragraph 19, and held that the plaintiff had no right to accelerate, unlike the unequivocal and unconditional acceleration in Albertina, supra, until entry of judgment. The instant mortgage contains nearly the same exact terms.
The prior opinions of this Court (see also Wilmington Sav. Fund Socy. v. DeCanio, 55 Misc.3d 1215(A), 57 N.Y.S.3d 677 [Sup. Ct., Suffolk County 2017] ) emanate from Albertina, supra, wherein the lender refused a late payment three days after the action was filed, arguing that the verified complaint had accelerated the entire debt. The mortgage there contained a strict statutory acceleration clause found in Real Property Law § 258, Schedule M (Id., at 474, 180 N.E. 176). In agreeing that the entire debt was accelerated, the Court of Appeals noted that “[t]he agreement does not provide what the holder of the mortgage must do to evidence its election to declare the whole amount due. Such a provision could have been embodied in the contract if the parties had so desired” (Id., at 475-6, 180 N.E. 176).
This is not a case where a mortgage contains an acceleration clause in statutory form (see Real Property Law § 258 [schedule N]; Charter One Bank, FSB v. Leone, 45 A.D.3d 958, 845 N.Y.S.2d 513 [3d Dept. 2007] ). Here, the mortgage contains an optional acceleration clause.
This Court recognizes that in recent years numerous cases have utilized the holding in Albertina, supra, to find that the commencement of a prior foreclosure action starts the running of the statute of limitations (see Clayton Natl., Inc. v. Guldi, 307 A.D.2d 982, 763 N.Y.S.2d 493, supra; Federal Natl. Mtge. Assn. v. Mebane, 208 A.D.2d 892, 618 N.Y.S.2d 88, supra; see also U.S. Bank Natl. Assn. v. Martin, 144 A.D.3d 891, 41 N.Y.S.3d 550 [2d Dept. 2016]; PSP-NC, LLC v. Raudkivi, 138 A.D.3d 709, 29 N.Y.S.3d 51 [2d Dept. 2016] ). The rule that has evolved is that “once a mortgage debt is accelerated, ‘the borrower's right and obligation to make monthly installments ceased and all sums [become] immediately due and payable,’ and the six-year Statute of Limitations begins to run on the entire mortgage debt” (EMC Mtge. Corp. v. Patella, 279 A.D.2d 604 at 605, 720 N.Y.S.2d 161 [2d Dept. 2001]; citing Federal Natl. Mtge. Assn. v. Mebane, 208 A.D.2d 892, 618 N.Y.S.2d 88, supra ).
However, as noted by the Court of Appeals in Albertina, supra, “[t]he parties to the mortgage in question were not limited to the use of the form of acceleration clause contained in the mortgage in question” (Id., at 476, 658 N.Y.S.2d 138). In the instant case, the parties did not chose to use the statutory form of acceleration set forth in Real Property Law § 258, Schedule M or N (compare Charter One Bank FSB v. Leone, 45 A.D.3d 958, 845 N.Y.S.2d 513 [3d Dept. 2007] ). In the instant case, the relevant optional acceleration clauses, in pertinent part, are set forth in paragraphs 22 and 19.
A reading of those contract provisions demonstrates that it is a judgment that triggers the unconditional acceleration in full of the entire loan debt. Until such acceleration is properly exercised, that is, upon the entry of a judgment of foreclosure, the statute of limitations cannot begin to run as to any future monthly installments owed. Under the terms of the contract, that is, the optional acceleration clause, the mere filing of a complaint is not enough, nor is it “clear and unequivocal.” (Wells Fargo Bank, N.A. v. Burke, 94 A.D.3d at 983, 943 N.Y.S.2d 540, supra; Sarva v. Chakravorty, 34 A.D.3d 438, 439, 826 N.Y.S.2d 74 [2d Dept. 2006] ).
In the instant case, the Court is not interpreting an automatic acceleration mortgage where the mere filing or even the swearing to of the complaint triggers acceleration (see Fannie Mae v. 133 Mtge., LLC, 126 A.D.3d 670, 2 N.Y.S.3d 361 [2d Dept. 2015]; Hirsch v. Badler, 3 A.D.2d 921, 162 N.Y.S.2d 720 [2d Dept. 1957]; see also City Sts. Realty Corp. v. Jan Jay Constr. Enters. Corp., 88 A.D.2d 558, 450 N.Y.S.2d 492 [1st Dept. 1982] ).
Therefore, contrary to the holdings set forth above, it is not true that “the borrower's right and obligation to make monthly installments ceased and all sums [become] immediately due and payable” by the filing of a complaint. Under the express wording of the mortgage document, plaintiff does not have a legal right to require payment in full with the simple filing of a foreclosure action. Here, only a foreclosure judgment triggers the acceleration in full of the entire mortgage debt. The instant case is similar to the facts in Wells Fargo Bank, N.A. v. Cohen, 80 A.D.3d 753, 754, 915 N.Y.S.2d 569 (2d Dept. 2011) where “the mortgage and note do not provide that the entire debt represented by the mortgage was to be automatically accelerated upon the borrower's default in an installment payment․”
Here, the lender bargained away its right to demand payment in full simply upon the commencement of an action and has afforded the borrower greater protections than that set forth in the statutory form of an acceleration clause under Real Property Law § 258 or under the holding in Albertina, supra.
In this case, it is the terms of the mortgage and not the commencement of a foreclosure action that determines when the maturity of a loan is accelerated. Therefore, the general caselaw set forth above is not controlling, since pursuant to the contract that governs this action, the mortgage remains, in essence, an installment contract until a foreclosure judgment and sale is entered. Since the mortgage debt has not been irrevocably accelerated, the borrower's right and obligation to make monthly installments has not ceased. All sums have not, as of yet, become irrevocably and immediately due and payable.
This Court recognizes that one federal judge disagrees with the above holding (see Cortes-Goolcharran v. Rosicki, Rosicki & Associates, P.C., 2018 WL 3748154 [E.D.N.Y. Aug. 7, 2018] ). However, to hold that the installment nature of the contract terminated once the plaintiff exercised the mortgage contract's optional acceleration clause ignores the mortgages's reinstatement provision and would permit the plaintiff only one chance to enforce the mortgage despite the occurrence of any future defaults. Importantly, it ignores the fact that plaintiff's right to accelerate is subject to the borrower's continuing right to cure.
As stated by the Florida Supreme Court, in Bartram v. U.S. Bank Natl. Assn., 41 Fla. L. Weekly S493, 211 So.3d 1009 (Sup. Ct. 2016):
Following to its logical conclusion Bartram's argument that acceleration of the loan was effective before final judgment in favor of the mortgagee-lender in a foreclosure action would mean that the mortgage-borrower would owe the accelerated amount after the dismissal, effectively rendering the reinstatement provision a nullity, and-in most case-leading to an unavoidable default.
The unverified acceleration language in the prior complaint is inconsistent with the mortgage which does not allow the plaintiff to reject a tender of arrears until the entry of judgment. Since under the optional acceleration clause the entire debt is not due until judgment, the statute of limitations has not run on the entire debt (see U.S. Bank Trust, N.A. v. Monsalve, 2017 WL 6994224 [Sup. Ct. Queens County, November 29, 2017] [Butler, J.S.C.] Index No. 713115/2016, NYSCEF Doc. No. 183).
Plaintiff's De-acceleration Letter and Subsequent Actions Revoked any Claimed Acceleration
In any event, plaintiff has demonstrated that on April 17, 2015, plaintiff mailed two separate certified de-acceleration letters to defendants' counsel stating, “[a]t this time, the lender hereby revokes it's prior election to accelerate all sums due and owing under the aforementioned loan documents.” Proof of mailing was submitted with the motion (# 004). Thereafter, plaintiff caused to be sent to the defendants four monthly installment letters, dated February 17, 2015, March 16, 2015, April 16, 2015 and May 18, 2015 which advised the defendants that they could re-commence their monthly payments.
The Second Department has authorized revocation of acceleration where it is done by an “affirmative act of revocation occurring within the six-year Statute of Limitations period subsequent to the service of the complaint in the prior foreclosure action” (Federal Natl. Mtge. Assn. v. Mebane, 208 A.D.2d 892, 894, 618 N.Y.S.2d 88, supra ).
One court has noted that the notion of “de-accelerating” “appears to largely be a creature of the Appellate Division, Second Department” (Wells Fargo Bank, N.A. v. Machell, 55 Misc.3d 1214[A], 58 N.Y.S.3d 876 [Sup. Ct., Ulster County 2017] ). Yet recently, the Second Department reaffirmed the right to de-acceleration of note obligations despite the lack of contract language to that effect (see Milone v. US Bank Natl. Assn., 164 A.D.3d 145, 83 N.Y.S.3d 524, supra ).
In the instant action, the de-acceleration letters were timely and the language used complies with the dictates of Milone, supra. Moreover, the actions of sending various monthly invoice statements containing an express demand for monthly payments constituted a de-acceleration in fact and cannot be deemed to be pretextual (Id.).
Here, the de-acceleration occurred within six years measured from the filing of the initial foreclosure action. There is no substantial prejudice to the defendants, who have defaulted on their mortgage obligation on December 1, 2008 and since that time have failed to pay the monthly mortgage installment payments, property taxes and homeowners insurance, and have continued to rent the premises, in Centereach, as income-producing property. Such does not equate to substantial prejudice.
The Bright Line Rule Should be that Each Subsequent Default Accruing After the Dismissal of an Earlier Foreclosure Action Creates a New Cause of Action
The prior action alleged a series of defaults by the defendants. With each subsequent default, the statute of limitations runs from the date of each default, providing the mortgagee the right to accelerate all sums then due under the mortgage.
In Bartram, supra, a case with remarkably similar contract terms as set forth herein, the Supreme Court of Florida held that in a matter where a prior foreclosure action was involuntarily dismissed after the plaintiff failed to appear at a case management conference, that the election to accelerate does not put the entire balance, including future installments, at issue.
As previously stated by the Supreme Court of Florida, in Singleton v. Greymar Assocs., 882 So.2d 1004, 1008, 20 Fla. L. Weekly S482 [Fla. 2004]:
Clearly, justice would not be served if the mortgagee was barred from challenging the subsequent default payment solely because he failed to prove the earlier alleged default.
The bright line rule should be that each payment default that is less than six years old creates a basis for a subsequent foreclosure or acceleration action.
There is no acceptable basis for relieving the borrowers of their contractual obligations to the plaintiff. The better rule, as stated in Dorta v. Wilmington Trust Nat. Assn., 2014 WL 1152917 at *6 (M.D. Fla. 2014):
if the mortgagee's foreclosure action is unsuccessful for whatever reason, the mortgagee still has the right to file subsequent foreclosure actions-so long as they are based on separate defaults.
The mortgage's reinstatement provisions, as set forth above, grants the borrower the right to avoid foreclosure by paying only the past due defaults. As noted in Deutsche Bank Trust Co. Americas v. Beauvais, 188 So.3d 938, 947 (Fla. 3d DCA 2016):
despite acceleration of the balance due and the filing of an action to foreclose, the installment nature of a loan secured by such a mortgage continues until a final judgment of foreclosure is entered an no action is necessary to reinstate it via a notice of ‘deceleration’ or otherwise.
Here, since the mortgage contract does not contain an automatic acceleration of the debt but gave the mortgagee the option to exercise acceleration, recovery of installments due within six years of commencement are not time-barred (see Loiacono v. Goldberg, 240 A.D.2d 476, 658 N.Y.S.2d 138 [2d Dept. 1997] ). The distinction between an option to accelerate and an automatic acceleration upon default is an important one for statute of limitation purposes. The first creates a new cause of action while the later does not (Id.). Plaintiff should be able to recover installments that are not time-barred (see generally, Kondaur Capital Corp. v. Reilly, 162 A.D.3d 998, 79 N.Y.S.3d 632 [2d Dept. 2018] ).
The Rule Should Mirror the Legislatively Expressed Public Policy
The expressed public policy of the State of New York, as continuously set forth in the various legislative enactments since the financial crisis of 2008, as expressed in RPAPL § 1304 and CPLR 3408, is clear. The Second Department noted that the legislative intent behind the Home Equity Theft Prevention Act (Real Property Law § 265—a, or “HETPA”), through which RPAPL § 1304 was enacted, was to provide greater protections to borrowers facing foreclosure (see First Natl. Bank of Chicago v. Silver, 73 A.D.3d 162, 165, 899 N.Y.S.2d 256 [2d Dept. 2010], citing Senate Introducer Mem. in Support, Bill Jacket, L. 2006, ch. 308, at 7—9). RPAPL § 1304 was thereafter enacted “to aid the homeowner in an attempt to avoid litigation, and to facilitate communication between distressed homeowners and lenders and/or servicers” (HSBC Bank USA, Nat. Assn. v. Ozcan, 154 A.D.3d 822, 825, 64 N.Y.S.3d 38 [2d Dept. 2017], citing Senate Introducer Mem. in Support, Bill Jacket L. 2008, ch. 472, § 2; Aurora Loan Services, LLC v. Weisblum, 85 A.D.3d 95, 923 N.Y.S.2d 609, supra ). Specifically, “[t]he bill sponsored sought ‘to bridge that communication gap in order to facilitate a resolution that avoids foreclosure’ by providing a pre-foreclosure notice advising the borrower of ‘housing counseling services available in the borrower's area’ and an ‘additional period of time ․ to work on a resolution’ ” (Aurora Loan Services, LLC v. Weisblum, 85 A.D.3d at 107—08, 923 N.Y.S.2d 609, supra, citing Senate Introducer Mem. in Support, Bill Jacket, L. 2008, ch. 472, at 10).
The content requirements of the 90-day RPAPL § 1304 notice support the “underlying purpose of HETPA to afford greater protections to homeowners confronted with foreclosure” (Aurora Loan Services, LLC v. Weisblum, 85 AD3d 95, 103, 923 N.Y.S.2d 609, supra, citing First Natl. Bank of Chicago v. Silver, 73 A.D.3d 162, 165, 899 N.Y.S.2d 256 [2d Dept. 2010] ). The legislative intent of CPLR 3408, as currently set forth in the statute, directs the court to hold conferences:
(I) determining whether the parties can reach a mutual agreeable resolution to help the defendant avoid losing his or her home, and evaluating the potential for a resolution in which payment schedules or a amounts may be modified or other workout option may be agreeable to, including, but not limited to, a loan modification, short sale, deed in lieu of foreclosure, or any other loss mitigation option; or (ii) whatever other purposes the court deems appropriate.
Yet, the current state of the law appears to encourage delinquent borrowers, in particular those who do not even reside at the premises, to seek to abuse the foreclosure process by remaining in default after an initial foreclosure action is voluntarily discontinued or dismissed by court order. The dismissal of a prior action, voluntarily or unvoluntarily, would insulate a defaulting borrower from future foreclosure actions, eliminating any incentive to make future timely payments. Courts should seek to avoid encouraging a delinquent borrower from not coming to a settlement with a plaintiff on a default in order to later insulate the borrower from the consequences of a subsequent default (see Fairbank's Capital Corp. v. Milligan, 234 Fed.Appx. 21, 24 [3d Cir. 2007] ).
It is settled that a foreclosure action is equitable in nature. “Once equity is invoked, the court's power is a broad as equity and justice require” (U.S. Bank N.A. v. Losner, 145 A.D.3d 935, at 938, 44 N.Y.S.3d 467 [2d Dept. 2016]; see Rajic v. Faust, 165 A.D.3d 716, 718, 85 N.Y.S.3d 470, 2018 WL 4762660 *2, October 3, 2018 [2d Dept. 2018] ).
The endless and confusing litigation surrounding issues of what constitutes an acceleration, what constitutes a de-acceleration, what constitutes a revocation, why such needs to be accomplished within six years of an initial foreclosure action when there are future defaults of the mortgage loan and note that have not yet occurred, is far afield from the legislative intent, as expressed above. The strict adherence to the contract provisions between the partied to the mortgage contract, would more readily facilitate the intention to seek loan modifications of the remaining installment payments, where the statute of limitations has not run on the subsequent defaults.
Unless the entire debt has been accelerated by the mortgage holder, on the date of default the statute of limitations begins to run only for the installment payments that became due on that date (see EMC Mtge. Corp. v. Patella, 279 A.D.2d 604, 605, 720 N.Y.S.2d 161, supra ). Here, for the various reasons set forth above, and contrary to the Sixteenth Affirmative Defense, the instant foreclosure action is not time-barred (see CPLR 213 ). For those past installment payments for which the statute of limitations has not run, plaintiff's action is timely.
The plaintiff's motion (# 004) is denied with leave to renew pursuant to the standards of CPLR 6401, since Real Property Law § 254[ (10) is not applicable. The defendants' cross motion (# 005) is denied. The proposed order to appoint a temporary rent receiver submitted with the motion has been marked “unsigned”.
1. Even the case relied upon by defendants' counsel acknowledges that “[t]he prior foreclosure action was never withdrawn by the lender” (Federal Natl. Mtge. Assn. v. Mebane, 208 A.D.2d at 894, 618 N.Y.S.2d 88 [2d Dept. 1994] ).
Thomas F. Whelan, J.
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Docket No: 609027/15 E
Decided: October 09, 2018
Court: Supreme Court, Suffolk County, New York.
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